Court says state can regulate Net gambling

In a case sparked by controversy over Internet gambling sites, Minnesota's Court of Appeals rules the state has jurisdiction over online activity originating outside its borders.

September 9, 19971:55 PM PDT

In a case sparked by controversy over Internet gambling sites, Minnesota's Court of Appeals has ruled that the state has jurisdiction over online activity originating outside its borders.

If the ruling sticks,
states could have a new precedent to
regulate Net gambling and other online activities that are illegal within their state boundaries. The decision also equates Web sites to direct mail advertisements or door-to-door salesmen, because if a pitch reaches Minnesota the state can exercise its consumer protection laws.

Issued Friday, the decision marks another victory for state attorney general Hubert Humphrey III, who aims to eliminate cybercasinos in Minnesota. In July 1995, Minnesota sued Las Vegas, Nevada, businessman Kerry Rogers, founder of the sports wagering operation Wager Net, which is still under construction. Minnesota alleged that Rogers's site falsely advertises that gambling on Wager Net is legal from anywhere in the world because the bets are taken and paid out from an office in Belize. (See related story)

Rogers filed a motion to dismiss the case on grounds that Minnesota can't govern his business in Nevada. But the appeals court has affirmed a lower court's ruling last December by stating Minnesota has jurisdiction.

"We hold that appellants are subject to personal jurisdiction in Minnesota because, through their Internet activities, they purposefully availed themselves of the privilege of doing business in Minnesota," the ruling states.

Rogers said he will appeal Friday's ruling as well. "If they have jurisdiction over the Internet, what is to prevent China from having jurisdiction over me, too?" Rogers asked today. "I didn't put a server in Minnesota, and I've never even taken a bet from Minnesota."

Minnesota will now try to shut Rogers's operation down. He faces civil fines of up to $25,000 if he is eventually found guilty of false advertising.

"In the eyes of the law, the behavior matters, not the medium," Humphrey said in a statement. "Whether a company solicits using a telephone, mail service, television, or the Internet, it is illegal and fraudulent in the state of Minnesota."

Legal experts say the final outcome of the case will be closely watched by brick-and-mortar casinos that have been reluctant in expanding onto the Net.

"It is uncertain as to what type of impact the state laws will have, so licensed casino operators are fearful of getting involved with Internet gambling," said Steven Schrier, who teaches a casino law course at Rutgers University's School of Law-Camden.

"The Minnesota court seems to be saying that the state has jurisdiction over somebody who is seeking to sell goods or services or obtain funds from citizens of that state," he added. "I think ultimately it's going to be up to Congress."

In Washington, legislators and President Clinton have already stepped up to the plate to address Net gambling.

Sen. Jon Kyl's (R-Arizona) Internet Gambling Protection Act would outlaw accepting and placing cash bets online. It would also require Internet service providers to remove gambling sites from their servers upon request by law enforcement agencies.

Clinton has appointed members to the National Gambling Impact Study Commission to conduct a two-year probe of Internet and Indian reservation gambling.